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Mandatory Climate Disclosure is Coming – Are You Ready?

From 1 July 2024, the Australian Government intends to require mandatory disclosures of climate related financial and non-financial data in company annual reports, in what is one of the most significant corporate reporting shake ups in decades. It is designed to clearly quantify all emissions including end-use of a company’s products, a first for Australia. One company’s end product is another’s input, so there is likely to be some virtuous contagion that will occur as emission intensity becomes another factor like price in product selection.

Photo by Scott Graham on Unsplash

The changes will affect both listed and private entities, starting with larger firms in 2024 (and those that are already required to report their emissions), but with the net tightening over the following four years to include (by the 2027/28 reporting year) mid-sized companies that meet at least two of the following thresholds: over 100 employees; $25m+ in gross assets; and/or $50m+ in consolidated annual revenue.

Companies will be required to consider material emissions along their full value chain, from raw materials extraction and intermediate processing, to emissions arising from the downstream use and disposal of their products or services. These so-called Scope 3 emissions typically account for most an organisation’s total climate impacts. Various databases and proxy measurement methodologies are available for estimating Scope 3 emissions, but increasingly, companies will be expected to be able to provide their customers with externally assured data breaking down emissions sources and providing estimated emissions per unit or dollar spend. 

Based on the International Sustainability Standards Board’s (ISSB) climate standard, IFRS S2, the new requirements will be formalised over the next few months, following consultation earlier in the year. Building on the disclosure framework originally proposed by the Taskforce for Climate-related Financial Disclosures (TCFD) in 2017, IFRS S2 adds more specific and onerous qualitative and quantitative disclosures around governance, strategy risk management, metrics & targets, and the location and timing of reports. 

The exact details of the Australian implementation will be contained in new Australian Accounting Standards Board (AASB) standards, expected to be finalised early next year. Quantitative analysis and levels of external assurance will be phased in, to give companies and their boards a bit of breathing space as they develop competency with the complex requirements.

The new disclosure standards are expected, in conjunction with other initiatives being undertaken by the ACCC and the Department of Climate Change, Energy, Environment and Water (such as the recently announced reform of its Climate Active certification scheme), to provide investors, customers, competitors and other stakeholders with much more comprehensive data and information about firms’ emissions intensity and climate risks, and the credibility of their plans for reduction and risk management. Greenwash will become much easier for regulators and others to identify and call out.

As ISSB Vice-Chair Sue Lloyd has said, “Companies should do this not because they’re forced to – but choose to – because it’s a great way to communicate to the market and attract capital.”

Even if your business is not caught in the disclosure net, expect those B2B clients who are to demand disclosure of the emissions intensity of the products and services you supply, along with your trajectory towards net zero greenhouse emissions. Companies with lower emissions intensity and a clear and compelling pathway to net zero will be at an advantage. If your business represents a material component of their value chains, expect them to request a breakdown of your climate risks and associated controls to feed into their own reporting. And if you’re seeking capital, bankers and other potential investors are likely to begin to require such disclosures. 

Not sure where to start? Contact us for a complimentary confidential briefing session to help you ascertain where you are in your climate reporting journey and recommended next steps to prepare.

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Climate Ambition is Rising – What Does it Mean for Your Business?

In December 2020 a virtual meeting of 70 world leaders took place, with many countries including the European Union and UK strengthening their emissions reduction ambitions through new pledges as part of the 5 yearly Paris Climate Agreement ratchet clause. [1] Australia – with a 2030 target that is less than half of what would be consistent with the IPCC’s recommendations to limit temperature rise to 1.5 degrees above the historical average, and with no net-zero commitment – was not invited to present to the forum. [2]

What are the implications for businesses?

It is clear that the world is shifting, at least in terms of policy announcements, towards a downwards emissions trajectory. Emissions peaked in 2019, and though dampened by the Covid-19 pandemic during 2020, are expected to trend upwards in 2021 as economies reopen and more normal travel patterns resume. However, the year has been marked by significant changes of stance and tone in the politics of emissions reduction amongst Australian trading partners that collectively purchase nearly three quarters of our emissions, including the UK, Europe, China, South Korea and Japan. [3] The US Presidential election result will see the incoming Biden team snap back to pre-Trump policies, including re-joining the Paris agreement and announcing a formal net-zero by 2050 target. [4]

In Australia, while there was a slight change in language since the US election, as yet there has been no shift in Federal emissions reduction policy, despite all states and territories now having net-zero policies or legislation. [5] This is cementing Australia’s position as a laggard amongst developed nations, particularly given our extremely high per-capita emissions. [6] This puts most businesses at a distinct disadvantage.

Let’s get physical

From a physical risk perspective, Australia is experiencing national temperature increases significantly above the global average due to the thermodynamics of its large dry landmass, which is on its way to becoming significantly hotter and dryer. The Murray Darling basin, home to much of the country’s agricultural output, has seen river flows has seen an 11% winter rainfall decline over the last two decades and is on its way to a projected 20% decrease in river flows even in a comparatively good case scenario of 2 degrees average global warming. [7]

Throw in higher rates of evaporative soil moisture loss, heat stress on plants; fewer frost days in winter (which are essential for some crops’ growth cycles); and more weather extremes including extreme precipitation events that denude topsoil and take juvenile plants with them, and you have a recipe for lower overall agricultural productivity and much greater output variability. It’s all very well as a wealthy country to say “we’ll just import more in a bad year”, but there is a growing likelihood that, with increasing frequency, multiple growing regions will experience bad years simultaneously. [8]

It’s not just agriculture that is exposed. As unusually intense storms pummelled Australia’s East Coast this week, threatening infrastructure and leading to significant erosion of Byron Bay’s iconic main beach [9] we had a taste of the growing threat of extreme coastal weather, particularly the damage that storm surges propelled by high tides and magnified by even small levels of sea level rise (to date mostly caused by thermal expansion of the heating ocean, but increasingly from melting land ice in polar regions). [10] Climate models project that both tropical cyclones and East Coast Lows, while not necessarily more frequent, are generally likely to be more intense when they do occur. [11]

Indeed, recent analysis by insurance broker Aon found that so-called secondary perils including hail, flood, storms and bushfires (that generate small to mid-sized losses compared with primary perils such as earthquakes and cyclones) have generated over half the global insured losses between 2017 and 2019. All of these phenomena are expected to become more damaging due to climate change. [12]

Globally, economic losses from extreme weather events have increased significantly over the last four decades, partly due to the increasing value of assets built in exposed areas. [13] With multi-metre sea level rise over the long term (beyond 2100) now locked in even if the Paris climate goals are met, and the majority of coral reefs almost certainly devastated by mid-century, billions of dollars of coastal infrastructure (including major roads, ports and airports) and tourism assets is at risk. [14] As such, affordability of insurance is decreasing: following Townsville’s 2019 flooding, premiums rose as much as four-fold. [15]

From Transition to Transformation

Then there are the transitional risks, which could affect companies’ revenues, asset valuations, or costs of doing business. Take the recently floated Dalrymple Bay Coal Terminal, which Queenslanders have an ill timed stake in through the government-owned QIC’s 10% share. Down 25% in its first week, during which the ASX shed just 0.6%. [16] The ASX200 energy sector has significantly under performed the broader Materials Index (covering all resources) over much of the last five years. [17]

While fossil-fuel related electricity and resources assets are currently the most affected, with major managers responsible for trillions of dollars of investment decisions announcing Paris-aligned net-zero mandates for their portfolios, it won’t be long before the malaise spreads to other major users of fossil fuels, particularly in transportation and in turn energy intensive industries such as steel. Just last week a new initiative – Net Zero Asset Managers – was launched with 30 founding signatories, adding to the UN-convened Net-Zero Asset Owner Alliance, launched in September 2019, which now has 33 members. [18] Emissions intensive businesses will come under increasing pressure to adopt transformative business models. Australian businesses may be disadvantaged to the extent our energy system remains fossil fuel dependent.

Unless Australia embraces a net zero 2050 target (along with a coherent plan to get there) – and particularly while it remains the highest per-capita emitter and one of the largest global producers of fossil fuels – exporters are likely to start feeling the pinch. The European Union has proposed a tax on imports from countries whose emissions reduction targets are not Paris-aligned, and one of the top contenders for the head of the OECD is proposing a global roll out of such a scheme. [19]

Most Australian businesses would benefit from policy decisions that accelerate the transformation towards a clean energy system encompassing electricity, transport, industry and agriculture. Economist Ross Garnaut and other analysts predict that a renewable grid would push electricity prices down, in turn lowering operational and transportation costs as vehicle fleets are electrified (or converted to green hydrogen in the case of some heavy transport). [20] As NSW’s recent renewable energy zone auction demonstrated, there is considerable private sector appetite to fund this transition given the superior economics of solar, wind and storage. [21]

Contrary to public perception, Australia’s coal and gas industries are responsible for only about 1% of jobs. [22] Clean and circular services, manufacturing, agriculture, energy and non-fossil resources industries are key to our future economy. Talk to Adaptive Capability today to understand the risks and opportunities of climate change and turbo charge your business.

David McEwen is a Director at Adaptive Capability, providing strategic risk and project management advice to help businesses create and preserve value in the face of climate change. His book, Navigating the Adaptive Economy, was released in 2016. Visit www.adaptiveeconomybook.com.

[1] https://www.theguardian.com/environment/2020/dec/12/world-is-in-danger-of-missing-paris-climate-target-summit-is-warned

[2] https://www.9news.com.au/national/united-nations-pressure-to-declare-climate-emergency-scott-morrison-snubbed-at-climate-ambition-summit/e158f9b6-ea6e-480c-b0f6-1f11e04e2d1a

[3] https://www.ft.com/content/185e5043-fd72-4fef-a05c-f2a5001c7f4b

[4] https://www.bbc.com/news/science-environment-54858638

[5] https://www.theguardian.com/environment/2020/nov/29/scott-morrisons-climate-language-has-shifted-but-actions-speak-louder-than-words

[6] https://www.bbc.com/news/science-environment-55222890

[7] https://www.smh.com.au/politics/federal/stop-fighting-and-start-adapting-to-climate-change-basin-authority-says-20201214-p56nbc.html

[8] https://www.bloomberg.com/news/articles/2020-05-18/climate-change-may-double-the-risk-of-breadbasket-failures

[9] https://www.theguardian.com/australia-news/2020/dec/14/byron-bay-beach-damage-worst-in-a-generation-as-storms-batter-1000km-of-coastline

[10] https://cleantechnica.com/2020/04/23/the-number-of-people-affected-by-floods-will-double-by-2030/

[11] https://climatechange.environment.nsw.gov.au/Impacts-of-climate-change/East-Coast-Lows/Future-East-Coast-Lows

[12] https://www.insurancejournal.com/news/international/2020/09/23/583704.htm

[13] https://www.bankofengland.co.uk/knowledgebank/climate-change-what-are-the-risks-to-financial-stability

[14] https://www.theguardian.com/environment/2020/sep/23/melting-antarctic-ice-will-raise-sea-level-by-25-metres-even-if-paris-climate-goals-are-met-study-finds

[15] https://www.abc.net.au/news/2019-12-21/high-premiums-driving-uninsured-homes-in-northern-australia/11819814

[16] https://www.afr.com/companies/infrastructure/dalrymple-bay-infrastructure-shares-sink-on-first-day-of-trading-20201208-p56lj8

[17] For example, graph in section 3 of this article: https://www.marketmatters.com.au/blog/post/market-matters-weekend-report-sunday-19th-july-2020/

[18] https://www.ipe.com/news/net-zero-asset-manager-initiative-kicks-off-with-30-founding-signatories/10049545.article

[19] https://www.smh.com.au/world/europe/economy-and-ecology-cormann-s-top-oecd-rival-pledges-climate-reform-20201210-p56m75.html

[20] Garnaut, R., Superpower – Australia’s low-carbon opportunity, La Trobe University Press, 2019.

[21] https://reneweconomy.com.au/dubbos-new-renewables-zone-shows-the-path-away-from-fossil-fuels-79082/

[22] https://www.canberratimes.com.au/story/7055572/how-australia-could-move-away-from-fossil-fuels-without-mass-layoffs/ 

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Is hydrogen in buildings the right approach?

83 years after the Hindenburg disaster highlighted the dangers of this highly flammable and explosive gas, hydrogen is now being touted as an energy saviour that will help humanity reduce its greenhouse emissions to avert catastrophic climate change. There’s a lot of talk and a growing investment pot, but not all of it is realistic or beneficial in helping countries achieve net zero decarbonisation targets.

Hydrogen is the lightest gas; colourless, odourless, and an excellent energy carrier: around three times more so than natural gas (methane, a fossil fuel) on a weight for weight basis. When burnt, its only emission is water, with no greenhouse gases or other toxins released.

On the other hand, in terms of energy density (per litre) it is considerably less efficient than natural gas and oil, and it involves a number of technical challenges to handle, store and transport safely and efficiently for different applications. Nevertheless it’s already used at reasonable scale in industry, mainly for applications like fertiliser production and refining petroleum products. Perhaps surprisingly, on many measures hydrogen is considered safer than methane or petrol. [1]

Where Does Hydrogen Come From?

Due to its tendency to bond with other elements, pure hydrogen (H2) is typically not found in abundant quantities either in the atmosphere or underground – it has to be made, using chemical processes that consume energy and, depending on the method, may involve significant greenhouse emissions themselves. And, it’s currently relatively expensive.

Those seeking action on climate change have their hopes pinned on hydrogen produced by splitting water molecules into their component H2 and O parts using electrolysis. Kids can do this at home using two conductors placed in a cup of water and connected to a battery. Bubbles of hydrogen form at the negatively charged cathode, while oxygen collects at the positive anode. Commercial electrolysers are improving rapidly in cost and performance.

If the electricity for the electrolyser is sourced exclusively from a renewable source (such as a wind or solar farm) then the hydrogen is known as “green”: it involves no operational emissions in its production or use. Electrolysers at large scale could provide a valuable demand response solution for the grid, by skimming excess renewable generation, or bespoke wind/solar farms could be established near production sites (see https://asianrehub.com/ for one such example).

(Of course, if processes involved in its transportation and storage create emissions, then it may not be a truly emissions free source. It also consumes a lot of fresh water, but so does the extraction and processing of fossil fuels and their use in electricity production.)

On the other hand, most of the hydrogen produced today comes from a process called steam methane reformation (SMR) using fossil gas; another method involves coal gasification. Both of these approaches produce significant greenhouse emissions.

Some (including the Australian Government in its recently released Technology Roadmap [2]) argue that SMR with carbon capture and storage (CCS) – i.e. trapping and burying the greenhouse emissions deep underground) can produce low emissions hydrogen, referred to as “blue”.

However:

  1. CCS technologies are relatively unproven and in any case do not trap 100% of emissions;
  2. CCS consumes additional energy, which would itself need to be renewably produced; and
  3. the extraction and transportation of the fossil methane to the hydrogen production facility involves significant “fugitive” emissions of methane, a greenhouse gas 86 times more potent than carbon dioxide.

Perhaps they call it “blue” because its emissions reduction outcomes are pretty sad compared to green hydrogen.

What should hydrogen be used for?

Currently, fossil methane (marketed as natural gas) has a wide range of applications including electricity production; vehicle fuels; many industrial processes, including where high heat is required; plus cooking, space and water heating in homes and commercial buildings. Theoretically, green hydrogen could be used for most of these (apart from industrial processes that rely on the specific chemical composition of methane or other hydrocarbons).

Hydrogen in Electricity Production
Does hydrogen have a place in electricity production? Renewable electricity generation supported by batteries and other storage systems can replace most use of gas (and coal) in the grid (much more cost effectively than hydrogen). There is likely to still be a need for dispatchable generation for odd times when wind and solar under-produce for multi-day periods depleting battery and pumped hydro storage capacity. A well designed renewable grid will limit but probably not eliminate those occurrences, and as we’ll see the grid is expected to grow significantly over the next few decades due to electrification. For a fully decarbonised grid, we will likely need green hydrogen turbines (as production costs become competitive) to fully phase out coal and fossil gas generation. For the foreseeable future however, hydrogen is likely to be relatively uncompetitive against fossil methane for such peaking requirements.

Hydrogen in Transport
Transport falls into two camps. The vast majority of personal transport needs will soon be able to be cost effectively met by battery electric vehicles, with hydrogen fuel cells remaining uncompetitive. Given the enormous advances in technology and manufacturing scale, BEVs are expected to be available before mid-decade for the same or lower cost of an equivalently featured internal combustion engine (ICE, i.e. petrol or diesel) car. They will have battery ranges more than equivalent to similarly sized ICE vehicles.

At that point (and assuming fast charging infrastructure matches uptake), only enthusiasts and those in remote parts of the country would buy an ICE vehicle given the much lower running costs of BEVs (charging costs a fraction of filling a tank, and with far fewer moving parts the outlook is bleak for motor mechanics). Charging a national fleet of BEVs is expected to increase grid demand in the order of 20%. [3]

Hydrogen fuel cell personal vehicles could gain a small foothold in remote communities given their ability to carry additional fuel, particularly if sales of ICE vehicles are banned and hydrogen refuelling infrastructure is established.

Conversely, for heavy transport, including buses, trucks, un-electrified trains, and shipping (but perhaps not aircraft), green hydrogen is emerging as a sensible way to go, cost effective given the emergence of a  network of refuelling depots and once its cost drops a little more, as it already has with growing scale and experience. The Australian government has set a target of A$2 per kilogram, at which point it is expected to become competitive with liquid transport fuels. According to UNSW research it’s currently in the $4-8 range [4]). 

In the case of shipping, green hydrogen converted to ammonia (another fuel that is emissions free when burnt) may be a good substitute for the heavy (and highly polluting) fuel oil that is currently used. Ammonia produced in this way is more energy efficient than current processes and can also be used in other applications such as fertiliser production (currently a major source of emissions associated with agriculture). [5] 
Suitable replacements for aviation fuel are more problematic. Battery powered planes may work for short haul commuter flights in the future, but hydrogen’s density issue may prevent it from replacing avgas. Synthetic carbon neutral  fuels — which green hydrogen might play a part in manufacture of — may be the solution here. 

Hydrogen in Industry
In industry, replacing natural gas and coking coal with hydrogen for a range of high heat applications including major emitters steel and cement offers great potential if the cost of hydrogen falls or carbon pricing is applied to traditional processes.

Why Hydrogen Doesn’t Make Sense In Buildings

For both residential and commercial buildings, replacing fossil methane with renewable hydrogen does not make sense for three key reasons:

1. To be competitive with gas for in-building applications, hydrogen would need to be significantly cheaper than is predicted for the foreseeable future. And that’s with domestic gas prices having climbed in Australia since the emergence of the LNG export market. Even if hydrogen prices reach US$1 per kg, it remains relatively uncompetitive with fossil gas, particularly in the absence of a carbon price. [6] 

2. Electric substitutes, generally with superior energy efficiency, can replace gas appliances in both homes and larger buildings. There is no economic case for expensive hydrogen to be used in buildings when electricity is available. As the emissions intensity of electricity generation continues to decrease with greater renewables penetration, neither fossil methane nor hydrogen can compete. 

3. Above about 10% concentration, hydrogen in the existing fossil methane transmission network (made of high tensile steel) will make the pipes brittle. While the local distribution network has mostly been replaced with HDPE pipes, which are acceptable for hydrogen use, many appliances in buildings will need to be adapted or replaced to cope with for high concentrations of hydrogen. 

The ACT government has already introduced mandates for new subdivisions, resulting in the first intentionally gas-network free suburbs. A number of recent commercial building projects have announced net zero targets, requiring all energy consumed to be fossil free. In such cases, fossil gas has been designed out in favour of all electric building systems and power contracted from renewable generators. This trend is expected to grow rapidly as more companies announce plans to achieve carbon neutrality.

What Future for the Gas Network?

If hydrogen in buildings doesn’t make sense, what is the future for the fossil gas network?

Proponents argue that there is merit in starting to inject “clean” hydrogen into the existing gas network. The NSW Government has set a target of 10% green hydrogen in the network by 2030. Australia’s Chief Scientist, Professor Alan Finkel, believes this early use of hydrogen will allow production to scale up over the decade before “pure” hydrogen applications can be rolled out at scale, providing much needed learning opportunities.[7]

We note, that unless there is a clear signal regarding the future of the gas network (i.e. its path to net zero emissions), blending hydrogen with fossil gas will slow down the uptake of electrification in buildings and lead to investment in gas-based plant that could become stranded assets as policies shift to achieve decarbonisation targets. Since going much beyond 10% concentration of hydrogen will require costly upgrades to transmission and building plant (as well as a material impact on energy prices), it is essential that government policy is resolved to provide investment certainty. 

Hydrogen is clearly in our future as a vital part of measures to achieve net zero emissions. A pure hydrogen gas network will be required, but it can be much smaller and more distributed than the current fossil gas grid. Rather than serving millions of buildings, it will only need to connect local hydrogen supply points (of which there will be many given the distribution of renewable energy generation), with connections to industrial and generation users, heavy transport vehicle fuelling stations and export terminals, collectively numbering in the hundreds or thousands. 

[1] For example, https://blog.ballard.com/hydrogen-safety-myths
[2]https://www.industry.gov.au/sites/default/files/September%202020/document/first-low-emissions-technology-statement-2020.pdf
[3] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Electric_Vehicles/ElectricVehicles/Report/c03
[4] https://newsroom.unsw.edu.au/news/science-tech/how-green-hydrogen-can-become-cheap-enough-compete-fossil-fuels
[5] https://arena.gov.au/projects/hydrogen-to-ammonia/
[6] https://reneweconomy.com.au/renewable-hydrogen-to-undercut-gas-on-price-but-not-the-answer-for-transport-99853/
[7] Alan Finkel answering the author’s question at the Australian National University’s Energy Change Institute webinar “Digging deeper into the Technology Investment Roadmap”, 8 October 2020

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Show your stripes

This isn’t art, it’s data. Each vertical line is a year. Blues are years that were cooler than the average between 1971 and 2000; red is hotter. The darker the colour the further from the mean. The hottest 10 years since records began in the late 1800s have all been in the last 20 years. 2020 has a good chance of setting a new record.

It’s not sunspots or volcanos or the earth’s rotation or whatever else you might want to believe because you watched some denialist crap on YouTube: it’s us. Mainly our use of coal, oil and gas, cement, land clearing and agriculture.

As it gets hotter, the weather becomes more tempestuous, crop harvests and fresh water supplies become less reliable, the seas rise and become more acidic, and ecosystems on which our lives depend collapse. This is all accelerating now. 

How to Fix It

We can fix it, given government will to make systemic changes to our economic system. The good news is that the technology is available today, and is already (or soon will be) cheaper than the old ways that have created the problems. There are multi trillion dollaropportunities for business, millions of jobs, and clean air and water to look forward to. Here’s how:

1. A moratorium on new fossil fuel extraction. Any new investment in coal, oil or gas is utterly incompatible with where we need to be. Existing plants will need to be wound down as quickly as later steps can be scaled up. 

2. Rapidly scale up renewables and storage. Australia is currently at 21% (of the current grid). We need to get to at least 700%. We have more than enough land, sun, wind and know how; and wind/solar with storage are now cheaper than fossil or nuclear alternatives – we just need the right policy and regulatory settings from government. 

3. Use the excess renewable power to electrify everything that can be including transportation, gas use in buildings and industrial processes. 

4. Use the rest of the excess to produce green hydrogen, which can be used for heavy transport (including ships and maybe aircraft), to make steel (instead of coking coal), fertiliser, and for other industrial processes that can’t be electrified. There’s also a huge emerging export opportunity to ship clean hydrogen instead of coal and LNG, and even to send power to Indonesia, Singapore and beyond via submarine cables from the NT. 

5. Replace cement, plastic and other products with emerging clean alternatives. 

6. Adopt regenerative agriculture to trap carbon in soils, improving productivity and water retention and reducing the need for artificial fertilisers. Reduce the livestock herd and introduce feed systems to reduce their methane emissions. 

7. Trap and store methane from landfills and wherever else emissions can’t be eliminated. Trapped greenhouse gases can be used as a feedstock for plastics, jet fuel and other chemical uses. 

8. Rewild – return land to nature. 

To maintain any semblance of a safe climate the world needs to halve greenhouse emissions by 2030 and get to net zero no later than 2050. As a rich nation with almost the highest per capita emissions in the world, and amazing assets to decarbonise, Australia owes it to the world to punch above our weight. 

But there are powerful vested interests distorting and diluting this message and fighting to preserve the status quo. The fossil fuel industry has captured Australian politicians (from both major parties) and key media organisations. They are using their super-profits to buy their longevity, while knowingly hastening the end of a habitable planet. 

What can you do?

  • Educate yourself. Start with the IPCC’s 2018 report about the difference between 1.5 and 2 degrees of warming. Read science written by scientists; avoid opinion pieces written by people with vested interests. Understand who funds what you read and watch, and question their motives. Join a group such as Australian Parents for Climate Actionto learn more and connect with the growing community of concerned people. 
  • Engage with your MPs and Senators. Write to them, call them, meet with them. Let them know you expect to see decisive and meaningful emissions reduction to secure your vote.
  • Engage with your community. Encourage your family, friends and colleagues to become more aware and politically engaged. 
  • Use your money wisely. Switch your super to a fund that does not invest in industries that contribute to climate change (it will probably generate a better return than your old fund – being sustainable pays). Bank with an institution that doesn’t lend to the fossil fuel sector. Switch to a power company that only uses renewable power. Replace ageing gas appliances with efficient electric alternatives. Insulate and draught-proof your home. Put solar on your roof and make your next car electric. You’ll save money and feel great. 
  • Eat less meat and dairy. Even if you’re a committed carnivore, try out the growing range of meat and dairy substitutes. Some are almost indistinguishable from the real thing and prices are falling. If you have the means, plant a veggie garden and compost. 
  • Travel less and think about your choices. Less flying and car use; more terrestrial mass transit, cycling and walking. Value time in nature. 
  • Switch your media to sources that clearly communicate the gravity of the climate crisis. 
  • Buy less stuff. Recognise that your self worth is not bound up in what you have, but about who you are and the actions you take. When you need stuff, think second hand. Repair, gift, or sell what you don’t need. 

Please, for your children’s or grand children’s sake; your nieces, nephews or just your friends’ children; we must convince our governments to truly act in the best interests of the voters they were elected to serve. 

#ShowYourStripes graphic by Ed Hawkins

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Investment and Abandonment – Cycles of Climate Adaptation

Despite multiplying public pressure, global action to reduce greenhouse gas emissions is currently falling substantially short of the levels necessary to avoid dangerous climate change. How will we adapt?

stormy beach
Photo by Joanna Kosinska on Unsplash

Most people broadly understand climate scientists’ predictions that, as global average temperatures continue to warm, the consequences will include extreme weather of increasing frequency and/or intensity; rising sea levels due to ice melt; consequential loss of biodiversity; and a range of other implications. But relatively few have thought about what that means to the way we live, and what we might need to do to adapt.

Anathema to Imperative

I started researching my book, Navigating the Adaptive Economy, in 2013. In those days, even after the failure of COP15 in Copenhagen to reach agreement on emissions reduction in 2009, it was still almost anathema to talk about adaptation: we were going to beat climate change and therefore adaptation wouldn’t be required. Mentioning it felt like a sign of defeat. 

Only six years later and despite the landmark Paris Agreement of 2015, global emissions are still rising[1]. According to the IPCC[2] we stand at a cross roads. Without an emphatic change of political direction in the next 12 months, there is very little chance of maintaining a safe climate during the remainder of this century. As such, talk on adaptation now takes centre stage.

An example: the recently released report from the Global Commission on Adaptation[3], which tries to talk up public and private sector investment in adaptive measures by painting a picture of positive returns on investment in early warning systems, resilient infrastructure and water supplies, agricultural productivity, and natural coastal defences. Most of the benefits involve future cost avoidance – adaptation as a form of insurance, though in this case for an outcome that will almost certainly happen, rather than one with a relatively low likelihood of occurrence. 

The next few decades will be marked by cycles of “fight” adaptation to sea level rise, followed by an eventual, belated realisation that abandonment and retreat is the only sensible long term course of action.

However, there’s a big challenge with adaptation: matching planning time scales with expectations of climatic change. 

Rising Seas: Rising Challenges

Take sea level rise (SLR). Five years ago Miami Beach, Florida spent US$500 million raising roads and seawalls at Sunset Harbour about 75cm and installing 80 pumps to avoid so-called “sunny day flooding”, when king tides back flow through storm water drains and flood the streets[4]. That’s a temporary, localised solution at best, for a coastline exposed to some of the highest rates of SLR in the world (currently just under 1cm per year; due to currents and local coast and seabed conditions rates of SLR vary considerably). The city has recently committed a further half billion dollars to raise additional vulnerable streets and is considering a plan to convert a golf course to wetlands to assist with storm-water drainage[5]. As a wealthy municipality it can currently afford this sort of expenditure, but for how long?

Locally, 55 coastal communities in West Australia alone are at risk of property and infrastructure damage from coastal erosion[6], with storm surges being amplified by Australia’s more modest sea level rise of just over 2mm per year over the past half century (but accelerating)[7]. What to do?

A difficult task for local and state government planners is deciding what level of SLR to assume over an infrastructure planning horizon of 50-100 years. Future climate projections are tricky for two main reasons: one is, we don’t know what humanity is going to do about emissions reductions; the second is that it’s difficult to predict at what point we might trigger natural positive feedbacks that amplify warming and/or the rate of SLR. Based on various assumptions about emissions and the response of the climate system, average SLR by 2100 could be anywhere from less than 50cm to potentially over 2 metres – a massive variation[8]. 

And it’s more complex, because a lot of potential coastal property damage is in conjunction with storm surges. The intensity and direction of the storms is affected by other climate change assumptions about ocean warming and atmospheric moisture retention; SLR then becomes a multiplier in terms of how much damage and how often. 

Fight or Flight Cycles

At the current stage in our evolution, humanity’s fight vs flight response seems to tend towards the former. So for a number of decades to come it feels likely that in many locations we will choose to attempt to defend coastal cities and homes from encroaching seas, through a combination of “planning denial” and infrastructure defence. 

Logically, governments would draw new “high water” lines on maps (based on whatever assumptions have been made about likely SLR encroachment over a given planning horizon) and limit development on the seaward side. In practice, a growing number of municipalities have attempted this and have in turn faced litigation by angry ratepayers whose properties fall on the wrong side of those lines, and are fearful about the impact to their asset values[9]. 

Miami Beach and Sydney Australia’s Collaroy Beach, which in the wake of a 2016 storm that saw an in ground swimming pool washed onto the substantially eroded beach, have taken the opposite route, investing in expensive protective infrastructure[10]. Elsewhere, beach “renourishment” and artificial reefs are being constructed to reduce coastal erosion.

Given events to date we predict the next few decades will be marked by cycles of “fight” adaptation, followed by an eventual, belated realisation that abandonment and retreat is the only sensible long term course of action. In this coming period there will be multi-billion dollar opportunities (trillions in aggregate) for infrastructure engineers and construction companies, funded by increasingly cash strapped municipalities and their alarmed ratepayers. And, as with drought assistance in Australia, state and federal governments will be forced to kick the tin. 

At some point in the latter part of the century, unless by some miracle emissions are under control and planetary scale carbon sinks have turned net zero into net negative emissions, the coastal defence projects will be abandoned, prompting a new wave of infrastructure spend to move entire cities inland to territory deemed safe enough for the next hundred years or so. Exactly how that wave will be funded remains to be seen. 

And it might not be the last. SLR doesn’t conveniently stop in the year 2100[11], though that is the current time limit of the most widely-reported projections. We may already have set in motion many centuries of ice melt, ultimately causing many metres of rise and eventually submerging hundreds of large coastal cities.

Of course, that’s just adaptation of coastal urban infrastructure to the effects of SLR. Fresh water and food production, public health and disaster preparedness are just some of the other areas that will face disruptive adaptation cycles. Smart companies will benefit by aligning their product/service portfolios.

  1. https://theconversation.com/carbon-emissions-will-reach-37-billion-tonnes-in-2018-a-record-high-108041
  2. https://www.theguardian.com/environment/2019/sep/23/countries-must-triple-climate-emissions-targets-to-limit-global-heating-to-
  3. https://cdn.gca.org/assets/2019-09/GlobalCommission_Report_FINAL.pdf
  4. https://www.miamiherald.com/news/local/community/miami-dade/miami-beach/article41141856.html
  5. https://www.tampabay.com/news/environment/2019/09/23/miami-beach-has-a-bold-idea-to-fight-sea-rise-turn-a-golf-course-into-wetlands/ 
  6. https://www.abc.net.au/news/2019-08-05/wa-erosion-hotspots-named-port-beach-rottnest-island/11382136
  7. https://coastadapt.com.au/climate-change-and-sea-level-rise-australian-region
  8. https://www.ipcc.ch/site/assets/uploads/2018/02/WG1AR5_Chapter13_FINAL.pdf
  9. For example, https://i.stuff.co.nz/dominion-post/news/wellington/115487741/wellington-report-2019-a-community-divided-on-what-to-do-about-coastal-erosion-sea-level-rise-and-climate-change
  10. https://www.governmentnews.com.au/coastal-council-a-crash-test-dummy-for-climate-change/
  11. https://phys.org/news/2018-10-global-sea-meters.html

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Ratified Paris, Now What?

paris-ratified-blogpost-2

Now that major economies have begun to ratify the Paris Climate Accord, countries need to deliver on their pledges. But how? And what will this mean for businesses?

In part one of this article we identified that businesses would inevitably bear the brunt of country-level reductions to greenhouse gas emissions. In this blog we drill into what businesses should do to prepare.

While governments are initially targeting the low hanging fruit of the few dozen or hundred companies that produce the bulk of their counties’ emissions (think coal fired power stations and steel makers, for example), even this may affect many organisations’ cost bases as input prices for power and other affected items rise, unless you’ve already insulated your company by purchasing renewable energy.

Regulated efficiency initiatives to reduce energy consumption and emissions are also gaining pace, benefitting firms whose buildings, manufacturing processes and products are already highly efficient. Innovation in energy and emissions efficiency will become a key point of difference for makers of a wide range of products and services.

Emerging categories such as electric cars (charged from renewable sources) and autonomous vehicles (which eventually could reduce the total number of vehicles and radically reduce congestion inefficiencies, as well as being programmed to drive as efficiently as possible) take efficiency initiatives into the realm of disruptive technologies. Companies will need to think years and sometimes decades ahead when designing product innovations to ensure they are not left behind by technological upstarts.

Eventually, regulations will extend to a broader range of GHG-producing compounds, including the fluorinated gases used in TV screens and the HFCs that have replaced CFCs as a refrigerant and propellent in spray cans. This will spark innovation in the design of products or processes that currently rely on such compounds, as well as services or products to ensure that their use is tightly controlled and doesn’t lead to them escaping into the atmosphere, either during or following the product’s lifecycle.

While the Australian government is currently clinging to its Direct Action, “pay the polluter to pollute less” policy, inevitably that will need to give way to a “polluter pays” mechanism.

Meanwhile, governments will push the burden of achieving GHG targets onto future administrations, which will compound the level of rapid transformation that businesses will be forced to deliver as the Paris commitment deadline approaches. And there is a clear expectation from the United Nations that many countries’ commitments will need to be strengthened in coming years in order to limit warming to the agreed target of 1.5 to 2 degrees Celsius.

Companies that take the lead today will be well positioned when this crunch comes.

Call Adaptive Capability today to develop the strategy for your business.

 

Image Credit: blindholm / BigStock

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Ratified Paris, Now What?

paris-ratified-blogpost

Recently ratified by major emitters such as China, India the U.S. and Europe, signatories to the Paris Climate Accord now need to deliver on their pledges. But how? And what will this mean for businesses?

The climate deal struck last year in Paris will take effect from 4 November 2016. The commitment requires countries to reduce their aggregate greenhouse gas (GHG) emissions – including carbon dioxide, methane and other gases that trap heat in the atmosphere – which are produced through the burning of fossil fuels and/or other industrial processes or land use change.

So far so good, but how will they deliver on their promises?

Given that businesses and the products they produce are accountable for a lion’s share of emissions, they will inevitably be expected to shoulder a lot of the burden of GHG emissions reduction.

Businesses cause GHG emissions through their use of electricity that is generated at coal, oil or gas power plants; from their vehicles and other transportation; the buildings they occupy; various manufacturing processes; their use of steel, cement and other compounds (that emit GHG’s in their production and/or use); and in their development and use of land.

The products businesses produce can, in turn, result in the production of GHG emissions while in use: car makers are an obvious example, but so are the manufacturers of air conditioners, TVs and thousands of other consumer products that rely on GHG-producing sources of energy or which are made with compounds and chemicals that can leach GHG’s into the atmosphere either during production, in use or after disposal.

The lesson for businesses is clear: plan for a much lower emissions future and develop a clear roadmap for achieving it. Changing the light bulbs is no longer going to cut it, and a whole of business approach is required including changes to the organisation’s product and service portfolio.

Call Adaptive Capability today to develop the strategy for your business.

 

Image Credit: Nicola Renna / BigStock

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To disrupt an industry, don’t mess with human nature

Climate change, barometer indicating global change

This article first appeared in The Fifth Estate.

It’s a decade or two from now. You’re the sole passenger in an Autonomous Vehicle. Coming around a blind corner, the car is confronted with several pedestrians blocking the narrow road. Far faster than a human driver, the computer determines its only options are to hit the pedestrians or crash the car into a wall. Both options will likely result in casualties – it’s the pedestrians or you. How would you want the the car to act?

A study recently published in the journal Science surveyed people’s attitudes with this scenario in mind. Unsurprisingly, the authors found that a majority believed AVs should be programmed to take a utilitarian approach to such decision-making, taking the option that would result in the least number of casualties. Paradoxically, but unsurprisingly, many of those same respondents declared they would be less likely to buy a car programmed that way for fear that it might be less beneficial to their own welfare.

Utilitarianism – the greatest good for the greatest number – is a fine concept that feels morally right to most people. Unfortunately it breaks down in practice with the people who find themselves part of the minority who are adversely affected by an event or change. Think of those who object to proposed public housing when it’s in their neighbourhood.

The study’s authors conclude that utilitarian programming of AVs is likely to reduce sales and therefore slow adoption of a technology that will ultimately save thousands of lives currently lost due to driver human error. Not to mention the myriad other potential benefits of AVs, a few of which I have previously chronicled.

This finding is symptomatic of many new technologies and process innovations that could help society make great strides in areas like energy efficiency or public safety, but somehow miss their full potential. The root cause of their failure often lies in failing to understand human nature.

Take occupancy sensors for zoned lighting control in office buildings. Only illuminate areas that are in use and you can bank significant electricity savings while reducing carbon emissions. Sounds like a no brainer. Yet I’ve seen plenty of places where this technology has been installed but has since been turned off at the occupants’ request.

“The floor doesn’t feel right when the lights aren’t all on,” is one comment I’ve heard.

“If the lights aren’t on in the adjacent meeting room then I don’t get enough light at my desk.”

“I get distracted when I see lights going on and off out of the corner of my eye.”

And at night, when such a system could be most beneficial, it turns out the remaining handful of occupants are freaked out by the idea of being in a small pool of light surrounded by darkness.

“What if someone creeps up on me – how will I know,” they say, ignoring the fact that unless any intruder is extremely stealthy and slow-moving they’ll give away their location when the lights come on in their area!

It’s UB-NIMBY-ism!

One can see this phenomenon as another example of UB-NIMBY-ism: “utilitarianism, but not in my back yard.”

Which brings us to policies to combat climate change by reducing anthropological greenhouse gas emissions – an example of UB-NIMBY-ism on a global scale. The majority who acknowledge the science understand that the way to solve the problem is to reduce global emissions. Quickly. To something very close to zero.

Yet while a few in the affluent West have adopted the frugal lifestyles associated with minimising one’s carbon footprint, the vast majority have done very little (apart from perhaps being a little more vigilant about turning the lights off and maybe wearing a sweater rather than turning the heater on).

And at the end of the day, even if everybody adopted the most energy efficient practices and technologies overnight, it would still not knock emissions down to anywhere near the required level.

Because those sorts of changes tackle the demand side of the equation. In this case what’s needed are measures to tackle the supply side. Measures that can only be enacted by governments, like punitive carbon taxes, revoking fossil fuel extraction permits and mothballing coal-fired power plants (and on the more positive side, kickstarting investment in large scale renewable energy and grid storage).

And at government level UB-NIMBY-ism is seen in world leaders’ calls for urgent action at forums such as the Paris COP talks last year, followed by limited concrete policy announcements upon returning home. Because in the absence of collective agreements to adopt supply-side measures, unilateral action could harm their economies, shifting mining royalties offshore and lining some other country’s pockets instead, without achieving any any environmental benefit.

It’s a thorny issue, and despite the apparent success of Paris the world still seems to be waiting for a compelling tipping point; a burning platform that forces voters and politicians out of their apathy and lethargy and provokes real action on that global scale. Unfortunately climate change is not the type of issue that creates the necessary sense of urgency. Even a warming-fuelled super-storm causing major damage to one of the world’s great cities is relatively quickly forgotten amongst the many issues that seem more pressing to politicians and their constituents.

And so we are forced to celebrate incremental successes: a new milestone for renewables generation here; a slow decline on coal-fired power plants there. All too little, too late.

As such, society will need to adapt to the new climate it has brought upon itself, necessitating many innovative products and services to deal with issues of urban and coastal infrastructure, healthcare, disaster management, food production, water supply and so on. Let’s hope that the urgent adaptation challenges we will face and the funds that will be needed to implement them do not fall victim to UB-NIMBY-ism. Reviewing the rhetoric on coastal protection in the wake of this month’s East Coast storm, however, that seems unlikely.

 

Image Credit: Ronald Hudson / BigStock

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Legal innovators profit from changing climate

JusticeThe legal fraternity is often good at spotting opportunity. So it comes as no surprise that innovative practices are developing practice specialities around carbon markets and climate change, appealing both to major greenhouse gas emitters and the parties that are affected by their emissions.

According to DLA Piper, for example, climate legal risk accompanies a decision that is either affected by climate change, or a decision that will affect climate change.

We’ve identified a number of opportunities for legal services in this area and predict there are plenty of fees to be made over the next couple of decades. For example:

  • Helping corporates around compliance with carbon mitigation legislation such as emissions reduction and trading schemes (as such policies are applied in different jurisdictions) and carbon footprint reporting obligations.
  • Supporting insurers and other aggrieved parties launching legal actions against governments (or corporates) for failing to adapt their infrastructure to deal with extreme weather events that are becoming more frequent/severe as a result of climate change. An early example was a suit by a U.S. Insurer against Cook County municipalities for failing to take action that would have reduced flooding around Chicago in April 2013 (later retracted, but an interesting PR exercise none the less).
  • Plaintiff and defendant representation as individuals and companies face property devaluation or other costs due to governments’ actions or inaction around preparing for sea level rise. There are potentially good fees from well heeled coastal property owners attacking new development restrictions aimed at reducing the risk of property damage from coastal inundation as well as from local governments attempting to defend such regulations.
  • A nascent class action market against persistent GHG emitters, particularly those found to have actively funded the climate denial campaign or hindered the enactment of sensible legislation to avert CC. Low lying island states whose very sovereignty is at risk from rising sea levels are one such example. One group has recently won a court action against the Netherlands Government for its failure to do enough in terms of emissions reduction.
  • Actions by investors against companies (particularly in the resources sector) in the event that valuations fall due to legislation aimed at limiting their ability to exploit fossil fuel reserves. A similar risk may apply to credit ratings agencies whose assessments fail to take account of the possibility of stranded assets.

Talk to Adaptive Capability to find out how your business may be affected by climate risks and where the opportunities lie.

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Climate change: the hefty price of business as usual

Confrontation

The debate is heating up, and yet Australia’s political leaders seem to be missing the real cost of climate change – a former Goldman Sachs heavyweight sheds insight into which parts of the economy will be hit by inaction the hardest.

Where do our major parties really stand?

The political world has become a bit topsy turvy lately. Countries like Canada, previously respected for their environmental leadership, have become international pariahs for promoting exploitation of their tar sands deposits.

And in Australia, as more than one commentator has observed, it’s become impossible to tell up from down as politicians backflip on major reforms.

The Liberals are dumping a free market solution for greenhouse emissions reduction (the carbon tax was legislated to transition to an Emissions Trading Scheme after the initial fixed price period); Labour is opposing a big government solution (the Coalition’s Direct Action scheme); and ironically the Greens are against a rise in the fuel excise tax (which might have sent a pricing signal discouraging the use of high emitting private vehicles).

What’s the cost of discord?

Just as Australia winds back its carbon scheme, a chorus of influential conservatives is dispelling arguments that reducing greenhouse emissions is taxing on the economy.

Hank Paulsen is a commentator to watch. He served as the US Treasury Secretary during the Bush administration and before that, was the head of one of the world’s most successful investment banks – Goldman Sachs. Having recently published a call to action on climate change in the New York Times, he’s teamed up with Republican former mayor of New York Michael Bloomberg and others to produce a report called Risky Business.

Risky Business focuses on the economic impacts of climate change in the US over the remainder of the century and identifies the worrying financial impacts of sticking to a business as usual scenario.

Here’s a quick summary of the Risky Business forecast:

  • Property damage from coastal inundation in the hundreds of billions of dollars
  • Decreased labour productivity for outdoor work due to the rise in extremely hot and/or humid days
  • Ballooning energy costs (partly due to soaring demand for air conditioning)
  • Stretched healthcare systems
  • Increased heat-related mortality
  • Reduced agricultural productivity

Acting now may leave Australia in a better financial position

 In fact, not only does a business as usual scenario turn out to have significant costs; a new economic study commissioned by the United Nations has found that a high emissions reduction scenario could transform major economies to zero net greenhouse emissions as soon as 2050 while still maintaining comfortable rates of growth. Australian National University economist Dr Frank Jotzo, a lead author of the forthcoming report, has noted (Sydney Morning Herald 9/7/14) findings that an annual Australian GDP growth rate of around 2.4% could be maintained while making massive emissions reductions to energy, agriculture and other sectors.

And this is where the rhetoric about the economy paying the price of slashing carbon emissions starts to sound more than a little hollow.

Of course studies and predictions come and go and political will is a huge obstacle to be overcome in many countries. However, with notable conservatives questioning the viability of business as usual and growing evidence that the move to a low emissions scenario may not be as economically difficult as it has been portrayed, the mood is beginning to shift.

This shift presents both risks and opportunities for many organisations. To find out how, talk to Adaptive Capability about safe guarding your organisation’s future.

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